AmTrust North America, Inc. v. Signify Insurance Ltd., No. 18-cv3779(ER), 2019 U.S. Dist. LEXIS 115576 (S.D.N.Y. Jul. 11, 2019).
A New York federal court denied a captive reinsurer’s motion to dismiss a cedent’s complaint and, instead, dismissed several of the captive reinsurer’s counterclaims against the cedent. The cedent and the captive reinsurer entered into a captive reinsurance agreement whereby the cedent and its affiliates would issue workers’ compensation policies for the captive’s parent, which the cedent would reinsurer with the captive reinsurer. The agreement had several requirements for security given the off shore domicile of the captive reinsurer.
At some point, the cedent issued no new policies and demanded that the captive reinsurer fulfill its obligations to provide the required security. The cedent wrote to the reinsurer stating that, “unless” the reinsurer posted the security within 30-days, the cedent terminated the captive agreement from inception. The reinsurer posted a significant portion of the required security two days later and 30 days later wrote to the cedent accepting the termination to inception. On its part, the cedent withdrew its notice of intent to terminate, but demanded the rest of the security.
Subsequently, the cedent and its affiliates commenced a breach of contract action and sought a declaration that the reinsurer was required to, and shall remain required to, maintain the security obligations. The reinsurer counterclaimed that the reinsurance agreement had been terminated from inception by the cedent and, in the alternative, that the court should rescind the reinsurance agreement. There were other counterclaims as well.
Both parties moved for judgment on the pleadings – the cedent to dismiss the first two counterclaims and the reinsurer to dismiss the cedent’s complaint in its entirety.
The court granted the cedent’s motion and denied the reinsurer’s motion. The court found that a reasonable person would understand the cedent’s letter to be a request for a cure and was insufficient to effect a rescission of the reinsurance agreement. The court also rejected the reinsurer’s argument that it had accepted the cedent’s offer of rescission. The court held that there was no offer. The court found that the cedent had sufficiently pled that the reinsurer had not adequately performed under the reinsurance agreement and denied the reinsurer’s motion to dismiss the complaint. Notably, the court found that, under the reinsurance agreement, the cedent’s obligation to cede gross and net premium arose only after a series of events, one of which was receipt of confirmation from the bank that the letter of credit (the collateral) had been increased to the levels required by the loss fund. Thus, said the court, the cedent’s duty to cede the premiums never arose.
